Leiden Law Blog

ECB not liable for Greek PSI

On 7 October 2015, the General Court delivered its long-awaited judgment in the Case T-79/13 Accorinti v ECB on the ECB’s non-contractual liability with respect to the 2012 Greek Private Sector Involvement programme (PSI). This judgment adds to the PSI saga which has given riven rise to both European (see Case T‑376/13, Case T-224/12 and Case C-226/13) and national litigation (see primarily Greek Council of State 1116/2014 and 1117/2014 – text available only in Greek).

In particular, in 2012, the Greek Government and some private bondholders agreed on a voluntary haircut of 53.5% of the securities held by them (PSI). By virtue of the Greek law No 4050/2012 and the application of a Collective Action Clause (CAC), Greece made the exchange of securities legally binding for all private holders of Greek debt instruments, including those who had not consented to the private sector involvement initiative. It is estimated that the PSI reduced the Greek debt by €105.6 billion. At the same time, however, it caused significant losses to the private bondholders.

Some of these bondholders (mainly Italian nationals) submitted an action for damages under Article 268 and 340 TFEU against the ECB, arguing that the latter had infringed their legitimate expectations, the principle of legal certainty and the principle of equal treatment of private creditors. More specifically, they contended that thanks to the Exchange Agreement of 15 February 2012 and the Decision 2012/153/EU, the ECB and the Eurosystem NCBs had managed to shield themselves from the haircut. Thus, they accused the ECB of reserving for itself a ‘preferential’ creditor status to the detriment of the private sector, under the pretext of its monetary policy task.

In a rather extensive judgment, the General Court rejected all claims of the Applicants and concluded that the loss suffered by them was not attributable to the ECB but to the economic risks ordinarily inherent in the commercial activities carried out in the financial sector. In particular, the Court found that the first of the three cumulative conditions for the Union’s liability under Article 340 TFEU, i.e. the existence of a sufficiently serious breach of EU law, was not fulfilled. It underlined that the ECB had acted within the limits of its wide discretion provided for under Articles 127 and 282 TFEU and had not infringed the legitimate expectations of the private bondholders or the principle of legal certainty. While the press releases and the public statements made by ECB staff prior to the PSI opposed a possible restructuring of the Greek debt, they nevertheless were of a general nature and not capable of giving rise to any legitimate expectations. As diligent and well-informed investors, the bondholders should have been aware of the highly unstable economic circumstances in Greece and should not have excluded the possibility of debt restructuring. In any case, the ECB had no power to decide on possible debt restructuring, as such a decision fell within the exclusive competence of the Greek Government.

Furthermore, the General Court found that the general principle of equal treatment was not applicable, as the private investors and the ECB were not in a comparable situation: the ECB was exclusively guided by public interest objectives (safeguarding price stability and the sound management of monetary policy), while the private investors acted in pursuit of the purely private interest of maximizing their profits. The Court also said that the clause pari passu was not part of the EU’s legal order, as it presupposed equal treatment of investors in non-comparable situations. In any case, such a clause was binding upon only the debtor (i.e. the Greek State) and not the ECB.

Finally, it is interesting to note that the private bondholders tried to argue in the alternative that even if the ECB’s actions were lawful, they were still entitled to compensation, as they had suffered unusual and special damage due to a disproportionate and intolerable interference with the essence of their right to property. However, the Court repeated its settled case law that as EU law currently stands, a comparative examination of the Member States’ legal systems does not permit the affirmation of a regime providing for non-contractual liability of the European Union for the lawful pursuit by it of its activities falling within the legislative sphere.

Certainly, the case raises important political and legal questions especially – but not exclusively – regarding the conflict of interests which arises under the involvement of the ECB in the so-called ‘troika’, its role as creditor of the Greek State and its overarching objective of safeguarding price stability as guardian of monetary policy. It remains to be seen how the Court of Justice will react to this multifaceted challenge in the event of an appeal.

Image: The new ECB seat in Frankfurt under construction; Epizentrum, Wikimedia Commons

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